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by : Alpha Insurance Analysts

The tragic sinking of the Kolskaya oil rig near Sakhalin Island is set to cost the London reinsurance market only a relatively modest $100mn.

But the market faces a more significant loss from a less widely reported incident with a second Gryphon-style floating production, storage and offloading (FPSO) vessel off the coast of Scotland, which is already being talked about as a $300mn+ loss.

The Insurance Insider understands that the twin loss is likely to intensify the trend towards bigger retentions and higher rates in the offshore energy reinsurance market.

According to sources, the sinking of the jack-up Kolskaya rig, which is owned by state drilling operator ArktikMorNefteGazRazvedka, will activate the reinsurance cover of primary insurer Sogaz.

This cover, which is brokered by Willis Re, will pay out $100mn with $25mn retained by the primary.

It is understood that Lancashire, Catlin, Chaucer and Beazley each have $10mn lines on the affected cover.

However, despite the deaths of 50 crew members, the Russian disaster is likely to have a more modest impact on international energy (re)insurers than the North Sea event.

The Petrojarl Banff is a floating platform used to extract and process oil. It performed the same function as the Maersk-owned Gryphon FPSO, which cost (re)insurers circa $1bn when it broke its moorings during a storm.

“This could be a re-run of Gryphon,” one senior energy underwriter told The Insurance Insider.
During the recent storms in Scotland the Petrojarl Banff – which is moored 200km east of Aberdeen – broke a number of its anchors and drifted off-station.

Work to assess the damage has been hampered by the unfavourable weather conditions, but sources expect there to have been considerable damage to sub-sea property, which might result in the FPSO remaining non-operational for a significant period.

It is owned by midstream energy firm Teekay Corporation, which will be able to call on cover brokered by Aon.

As with the Gryphon, the lion’s share of any claim is likely to come from business interruption rather than straight property damage.

At this stage solid loss estimates are premature, but insurers and brokers in London are already talking about a claim that could be upwards of $300mn.

Source : Insurance Insider